"I will never give up on the hope for peace between Israelis and Palestinians," said Obama, "Palestinians deserve an end to the occupation and the daily indignities that come with it. That's why we've worked so hard over the years for a two-state solution and to develop innovative ways to address Israel's security and Palestinian sovereignty needs."

Obama: 'We look to the new Israeli government and the Palestinians to demonstrate—through policies and actions—a genuine commitment to a two-state solution.' (Photo: AFP)

Obama's comments came prior to a meeting of the Gulf Cooperation Council (GCC) in which he is due to sit with key leaders of six Arab nations from the Middle East.

While his hope remains, Obama said, "It's no secret that we now have a very difficult path forward. As a result, the United States is taking a hard look at our approach to the conflict," suggesting that the EU is not alone in considering policy adjustments with Israel.

"Addressing the lasting impact in Gaza of last summer's conflict should also be central to any effort," concluded Obama. "Ultimately, the parties will need to address not just Gaza's immediate humanitarian and reconstruction needs, but also core challenges to Gaza's future within a two-state context, including reinvigorating Gaza's connection with the West Bank and reestablishing strong commercial links with Israel and the global economy."